Hotel turns profit under new management

Tuesday

The President Abraham Lincoln Hotel and Conference Center is making a profit since a court-appointed receiver took over operations in March.

The President Abraham Lincoln Hotel and Conference Center is making a profit since a court-appointed receiver took over operations in March.

In the first six months since Hostmark Hospitality Group began running it, the hotel showed a profit of more than $927,000.

During the same six-month period in 2006, the hotel showed a profit of only about $126,000, said Scott Burnham, spokesman for Treasurer Alexi Giannoulias.

Profit margins are important because the hotel was built with the help of a state-backed loan. Under a refinancing deal, the hotel’s owners had to make payments on the state loan only when the facility showed a profit. Giannoulias’ office said the hotel made only two payments on the loan since 1998 and none in the last four years.

“The state is finally realizing some money from this mess,” Burnham said. “We’re realizing the hotel is very profitable.”

But while officials are pleased that the hotel is showing a profit, they also have concerns.

Burnham said the treasurer’s office also wants to know why no payment was made on the loan in 2006 if the hotel was showing a profit. As of Oct. 2, unpaid principal and interest on the loan totaled more than $29.3 million.

Springfield attorney Steven Tagge, who represents the hotel owners, did not return phone calls seeking comment. The hotel is owned by more than 80 investors, including prominent Springfield Republican Bill Cellini.

In late 2006, a Cook County circuit judge declared that the hotel was in default of its state-backed loan. Park National Bank, trustee of the Illinois Insured Mortgage Pilot Program, began foreclosure proceedings against the hotel in January. The hotel owners agreed to the appointment of a receiver to operate the hotel while the foreclosure proceeding wends its way through the courts. Hostmark took over operations March 1.

In the first six months, the hotel showed net profits of $927,000, Burnham said. The occupancy rate was just over 50 percent, up from 43 percent during the same six months of 2006.

“Guest service scores are on the rise,” said Biff Hawkey, Hostmark’s senior vice-president of development. “Cleanliness is as high as it’s ever been. The things you can control through staff, the scores are very satisfying to us. We have a Springfield-based group of employees who love the hotel and are as positively responsive as any group of employees in the nation.”

Hawkey attributed some of the revenue turnaround to an extra $100,000 spent on marketing efforts since Hostmark took over. Some of it, he said, is also the result of “cash management, assessing where things are spent and how they are spent.”

“A substantial part of that was to effectively spend marketing dollars,” Hawkey said. “It’s not cost-cutting that makes a hotel successful. It’s spending money in the most advantageous way possible.”

Although exact figures aren’t available, some of the increased occupancy also is attributed to state employees. Most elected officials had banned their employees from staying at the hotel while in Springfield on state business because the previous owners were not making payments on the loan. Those bans were lifted after Hostmark took over.

“I’m sure it was significant,” Hawkey said of that impact.

The overtime session of the General Assembly also helped. The hotel is also used by lobbyists and others with legislative business.

Hostmark installed a new floor in the hotel kitchen to bring it up to health codes. It also spruced up some rooms that were showing wear and tear.

However, efforts to make other improvements -- such as installing new room locks --are stalled. The 1990 loan restructuring agreement also put restrictions on spending money for major improvements. Attorneys for the state are trying to resolve it so that Hostmark can continue renovations.

Profits from the hotel are not being used to pay down the debt. Instead, the money will be kept in a special account and used for upgrades at the hotel. State officials believe that will add to the hotel’s value and secure more money for the state if it is eventually sold.

The hotel owners are fighting the foreclosure in court.

If the state prevails, the President Lincoln will go to a foreclosure sale, just as happened with a hotel in Collinsville that also was built with the help of a state-backed loan. The owners of that hotel also defaulted on their loan.

In the case of the Collinsville hotel, the state set a $25 million asking price at the foreclosure sale, knowing that no one was likely to bid that high. Burnham said the treasurer’s office believes the state will get more money if improvements are made to the hotel and it is then sold on the open market.

Burnham said the same procedure will be used in Springfield.

“We’ll begin discussions with some bigger hotel chains to determine what improvements are most cost-effective and most attractive to prospective buyers,” Burnham said. “We’re confident that putting a little money into the hotel will make a big difference and result in even more substantial profits in the future.”